This paper estimates stochastic frontier energy demand functions with non-public, plant-level data from the U.S. Census Bureau to measure the energy efficiency gap and energy price elasticities in the food processing industry. The estimates are for electricity and fuel use in 4 food processing sectors, based on the disaggregation of this industry used by the National Energy Modeling System Industrial Demand Module. The estimated demand functions control for plant inputs and output, energy prices, and other observables including 6-digit NAICS industry designations. Own price elasticities range from 0.6 to -0.9 with little evidence of fuel/electricity substitution. The magnitude of the efficiency estimates is sensitive to the assumptions but consistently reveal that few plants achieve 100% efficiency. Defining a 'practical level of energy efficiency' as the 95th percentile of the efficiency distributions and averaging across all the models result in a ~20% efficiency gap. However, most of the potential reductions in energy use from closing this efficiency gap are from plants that are 'low hanging fruit'; 13% of the 20% potential reduction in the efficiency gap can be obtained by bringing the lower half of the efficiency distribution up to just the median level of observed performance. New plants do exhibit higher energy efficiency than existing plants which is statistically significant, but the difference is small for most of the industry; ranging from a low of 0.4% to a high of 5.7%.
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Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry
April 2018
Working Paper Number:
CES-18-16
This paper addresses the relative effectiveness of market vs program based climate policies. We compute the carbon price resulting in an equivalent reduction in energy from programs that eliminate the efficiency gap. A reduced-form stochastic frontier energy demand analysis of plant level electricity and fuel data, from energy-intensive chemical sectors, jointly estimates the distribution of energy efficiency and underlying price elasticities. The analysis controls for plant level price endogeneity and heterogeneity to obtain a decomposition of efficiency into persistent (PE) and time-varying (TVE) components. Total inefficiency is relatively small and price elasticities are relatively high. If all plants performed at the 90th percentile of their efficiency distribution, the reduction in energy is between 4% and 13%. A modest carbon price of between $9.48/ton and $14.01/ton CO2 would achieve reductions in energy use equivalent to all manufacturing plants making improvements to close the efficiency gap.
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Measuring Plant Level Energy Efficiency and Technical Change in the U.S. Metal-Based Durable Manufacturing Sector Using Stochastic Frontier Analysis
January 2016
Working Paper Number:
CES-16-52
This study analyzes the electric and thermal energy efficiency for five different metal-based durable manufacturing industries in the United States from 1987-2012 at the 3 digit North American Industry Classification System (NAICS) level. Using confidential plant-level data on energy use and production from the quinquennial U.S. Economic Census, a stochastic frontier regression analysis (SFA) is applied in six repeated cross sections for each five year census. The SFA controls for energy prices and climate-driven energy demand (heating degree days - HDD - and cooling degree days - CDD) due to differences in plant level locations, as well as 6-digit NAICS industry effects. A Malmquist index is used to decompose aggregate plant technical change in energy use into indices of efficiency and frontier (best practice) change. Own energy price elasticities range from -.7 to -1.0, with electricity tending to have slightly higher elasticity than fuel. Mean efficiency estimates (100 percent equals best practice level) range from a low of 32 percent (thermal 334 - Computer and Electronic Products) to a high of 86 percent (electricity 332 - Fabricated Metal Products). Electric efficiency is consistently better than thermal efficiency for all NAICS. There is no clear pattern to the decomposition of aggregate technical Thermal change. In some years efficiency improvement dominates; in other years aggregate technical change is driven by improvement in best practice.
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Estimating the Distribution of Plant-Level Manufacturing Energy Efficiency with Stochastic Frontier Regression
March 2007
Working Paper Number:
CES-07-07
A feature commonly used to distinguish between parametric/statistical models and engineering models is that engineering models explicitly represent best practice technologies while the parametric/statistical models are typically based on average practice. Measures of energy intensity based on average practice are less useful in the corporate management of energy or for public policy goal setting. In the context of company or plant level energy management, it is more useful to have a measure of energy intensity capable of representing where a company or plant lies within a distribution of performance. In other words, is the performance close (or far) from the industry best practice? This paper presents a parametric/statistical approach that can be used to measure best practice, thereby providing a measure of the difference, or 'efficiency gap' at a plant, company or overall industry level. The approach requires plant level data and applies a stochastic frontier regression analysis to energy use. Stochastic frontier regression analysis separates the energy intensity into three components, systematic effects, inefficiency, and statistical (random) error. The stochastic frontier can be viewed as a sub-vector input distance function. One advantage of this approach is that physical product mix can be included in the distance function, avoiding the problem of aggregating output to define a single energy/output ratio to measure energy intensity. The paper outlines the methods and gives an example of the analysis conducted for a non-public micro-dataset of wet corn refining plants.
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Empirical Distribution of the Plant-Level Components of Energy and Carbon Intensity at the Six-digit NAICS Level Using a Modified KAYA Identity
September 2024
Working Paper Number:
CES-24-46
Three basic pillars of industry-level decarbonization are energy efficiency, decarbonization of energy sources, and electrification. This paper provides estimates of a decomposition of these three components of carbon emissions by industry: energy intensity, carbon intensity of energy, and energy (fuel) mix. These estimates are constructed at the six-digit NAICS level from non-public, plant-level data collected by the Census Bureau. Four quintiles of the distribution of each of the three components are constructed, using multiple imputation (MI) to deal with non-reported energy variables in the Census data. MI allows the estimates to avoid non-reporting bias. MI also allows more six-digit NAICS to be estimated under Census non-disclosure rules, since dropping non-reported observations may have reduced the sample sizes unnecessarily. The estimates show wide variation in each of these three components of emissions (intensity) and provide a first empirical look into the plant-level variation that underlies carbon emissions.
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Exploring New Ways to Classify Industries for Energy Analysis and Modeling
November 2022
Working Paper Number:
CES-22-49
Combustion, other emitting processes and fossil energy use outside the power sector have become urgent concerns given the United States' commitment to achieving net-zero greenhouse gas emissions by 2050. Industry is an important end user of energy and relies on fossil fuels used directly for process heating and as feedstocks for a diverse range of applications. Fuel and energy use by industry is heterogeneous, meaning even a single product group can vary broadly in its production routes and associated energy use. In the United States, the North American Industry Classification System (NAICS) serves as the standard for statistical data collection and reporting. In turn, data based on NAICS are the foundation of most United States energy modeling. Thus, the effectiveness of NAICS at representing energy use is a limiting condition for current
expansive planning to improve energy efficiency and alternatives to fossil fuels in industry. Facility-level data could be used to build more detail into heterogeneous sectors and thus supplement data from Bureau of the Census and U.S Energy Information Administration reporting at NAICS code levels but are scarce. This work explores alternative classification schemes for industry based on energy use characteristics and validates an approach to estimate facility-level energy use from publicly available greenhouse gas emissions data from the U.S. Environmental Protection Agency (EPA). The approaches in this study can facilitate understanding of current, as well as possible future, energy demand.
First, current approaches to the construction of industrial taxonomies are summarized along with their usefulness for industrial energy modeling. Unsupervised machine learning techniques are then used to detect clusters in data reported from the U.S. Department of Energy's Industrial Assessment Center program. Clusters of Industrial Assessment Center data show similar levels of correlation between energy use and explanatory variables as three-digit NAICS codes. Interestingly, the clusters each include a large cross section of NAICS codes, which lends additional support to the idea that NAICS may not be particularly suited for correlation between energy use and the variables studied. Fewer clusters are needed for the same level of correlation as shown in NAICS codes. Initial assessment shows a reasonable level of separation using support vector machines with higher than 80% accuracy, so machine learning approaches may be promising for further analysis. The IAC data is focused on smaller and medium-sized facilities and is biased toward higher energy users for a given facility type. Cladistics, an approach for classification developed in biology, is adapted to energy and process characteristics of industries. Cladistics applied to industrial systems seeks to understand the progression of organizations and technology as a type of evolution, wherein traits are inherited from previous systems but evolve due to the emergence of inventions and variations and a selection process driven by adaptation to pressures and favorable outcomes. A cladogram is presented for evolutionary directions in the iron and steel sector. Cladograms are a promising tool for constructing scenarios and summarizing directions of sectoral innovation.
The cladogram of iron and steel is based on the drivers of energy use in the sector. Phylogenetic inference is similar to machine learning approaches as it is based on a machine-led search of the solution space, therefore avoiding some of the subjectivity of other classification systems. Our prototype approach for constructing an industry cladogram is based on process characteristics according to the innovation framework derived from Schumpeter to capture evolution in a given sector. The resulting cladogram represents a snapshot in time based on detailed study of process characteristics. This work could be an important tool for the design of scenarios for more detailed modeling. Cladograms reveal groupings of emerging or dominant processes and their implications in a way that may be helpful for policymakers and entrepreneurs, allowing them to see the larger picture, other good ideas, or competitors. Constructing a cladogram could be a good first step to analysis of many industries (e.g. nitrogenous fertilizer production, ethyl alcohol manufacturing), to understand their heterogeneity, emerging trends, and coherent groupings of related innovations.
Finally, validation is performed for facility-level energy estimates from the EPA Greenhouse Gas Reporting Program. Facility-level data availability continues to be a major challenge for industrial modeling. The method outlined by (McMillan et al. 2016; McMillan and Ruth 2019) allows estimating of facility level energy use based on mandatory greenhouse gas reporting. The validation provided here is an important step for further use of this data for industrial energy modeling.
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The Impact of Industrial Opt-Out from Utility Sponsored Energy Efficiency Programs
October 2023
Working Paper Number:
CES-23-52
Industry accounts for one-third of energy consumption in the US. Studies suggest that energy efficiency opportunities represent a potential energy resource for regulated utilities and have resulted in rate of return regulated demand-side management (DSM) and energy efficiency (EE) programs. However, many large customers are allowed to self-direct or opt-out. In the Carolinas (NC and SC), over half of industrial and large commercial customers have selected to opt out. Although these customers claim they invest in EE improvements when it is economic and cost-effective to do so, there is no mechanism to validate whether they actually achieved energy savings. This project examines the industrial energy efficiency between the program participants and non participants in the Carolinas by utilizing the non-public Census of Manufacturing data and the public list of firms that have chosen to opt out. We compare the relative energy efficiency between the stay-in and opt-out plants. The t-test results suggest opt-out plants are less efficient. However, the opt-out decisions are not random; large plants or plants belonging to large firms are more likely to opt out, possibly because they have more information and resources. We conduct a propensity score matching method to account for factors that could affect the opt-out decisions. We find that the opt-out plants perform at least as well or slightly better than the stay-in plants. The relative performance of the opt-out firms suggest that they may not need utility program resources to obtain similar levels of efficiency from the stay-in group.
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The Impact of Heterogeneous NOx Regulations on Distributed Electricity Generation in U.S. Manufacturing
April 2015
Working Paper Number:
CES-15-12
The US EPA's command-and-control NOx policies of the early 1990s are associated with a 3.1 percentage point reduction in the likelihood of manufacturing plants vertically integrating the electricity generation process. During the same period California adopted a cap-and-trade program for NOx emissions that resulted in no significant impact on distributed electricity generation in manufacturing. These results suggest that traditional command-and-control approaches to air pollution may exacerbate other market failures such as the energy efficiency gap, because distributed generation is generally recognized as a more energy efficient means of producing electricity
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Inter Fuel Substitution And Energy Technology Heterogeneity In U.S. Manufacturing
March 1993
Working Paper Number:
CES-93-05
This paper examines the causes of heterogeneity in energy technology across a large set of manufacturing plants. This paper explores how regional and intertemporal variation in energy prices, availability, and volatility influences a plant's energy technology adoption decision. Additionally, plant characteristics, such as size and energy intensity, are shown to greatly impact the energy technology adoption decision. A model of the energy technology adoption is developed and the parameters of the model are estimated using a large, plant-level dataset from the 1985 Manufacturing Energy Consumption Survey (MECS).
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Cogeneration Technology Adoption in the U.S.
January 2016
Working Paper Number:
CES-16-30
Well over half of all electricity generated in recent years in Denmark is through cogeneration. In U.S., however, this number is only roughly eight percent. While both the federal and state governments provided regulatory incentives for more cogeneration adoption, the capacity added in the past five years have been the lowest since late 1970s. My goal is to first understand what are and their relative importance of the factors that drive cogeneration technology adoption, with an emphasis on estimating the elasticity of adoption with respect to relative energy input prices and regulatory factors. Very preliminary results show that with a 1 cent increase in purchased electricity price from 6 cents (roughly current average) to 7 cents per kwh, the likelihood of cogeneration technology adoption goes up by about 0.7-1 percent. Then I will try to address the general equilibrium effect of cogeneration adoption in the electricity generation sector as a whole and potentially estimate some key parameters that the social planner would need to determine the optimal cogeneration investment amount. Partial equilibrium setting does not consider the decrease in investment in the utilities sector when facing competition from the distributed electricity generators, and therefore ignore the effects from the change in equilibrium price of electricity. The competitive market equilibrium setting does not consider the externality in the reduction of CO2 emissions, and leads to socially sub-optimal investment in cogeneration. If we were to achieve the national goal to increase cogeneration capacity half of the current capacity by 2020, the US Department of Energy (DOE) estimated an annual reduction of 150 million metric tons of CO2 annually ' equivalent to the emissions from over 25 million cars. This is about five times the annual carbon reduction from deregulation and consolidation in the US nuclear power industry (Davis, Wolfram 2012). Although the DOE estimates could be an overly optimistic estimate, it nonetheless suggests the large potential in the adoption of cogeneration technology.
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Energy Intensity, Electricity Consumption, and Advanced Manufacturing Technology Usage
July 1993
Working Paper Number:
CES-93-09
This paper reports on the relationship between the usage of advanced manufacturing technologies (AMTs) and energy consumption patterns in manufacturing plants. Using data from the Survey of Manufacturing Technology and the 1987 Census of Manufactures, we model the energy intensity and the electricity intensity of plants as functions of AMT usage and plant age. The main findings are that plants which utilize AMTs are less energy intensive than plants not using AMTs but consume proportionately more electricity as a fuel source. Additionally, older plants are generally more energy intensive and rely on fossil fuels to a greater extent than younger plants.
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